Thursday, 13 December 2012

Springhill Group Korea: Spain Borrowing Costs Ease, Catalonia Unhappy

ALLVOICES
NEWS - Spain’s borrowing costs on its 10-year government bonds fell to the
lowest level since January on Thursday.

At its latest debt auction raised
4.8 billion euros and saw strong demand from investors for the bonds maturing
in three and 10 years’ time.

Madrid has been able to more
easily sell its bonds at lower rates of interest since the European Central Bank announced
its bond-buying plan.

Trader Ignacio Blanco with
Bankinter said: “Over the last month and a half bond interest rates are down
more than two percent, since Draghi spoke at the end of July. There was strong
demand in the days before the auction and today too. They were buying bonds
before, they continued to buy today, and the initial operations after the
auction were good.”

Many analysts have warned Spain’s
borrowing costs could skyrocket to unsustainable levels unless Rajoy asks for
an international bailout, at which point the ECB would start buying Spanish
bonds.

The country’s economic crisis is
exposing deep fault lines with the wealthy, but heavily indebted, region of
Catalonia calling for tax breaks.

Catalonia, which is in
northeastern Spain, generates one fifth of the country’s economic output and is
home to 16 percent of Spaniards.

More than half of Catalans say
they want a separate state, and hundreds of thousands marched in Barcelona last
week – the biggest such show of separatist fervor.

The upsurge in Catalan separatism
is founded on a conviction that Madrid is draining the region financially.

The central government collects
most taxation payments then redistributes them to Spain’s 17 self-governing
regions, which run their own schools and hospitals. Each year Catalans say they
pay 16 billion euros more in taxes than the regional government spends.

The region’s debts have made the
Madrid government’s task of balancing the budget more difficult.

Rajoy has threatened to intervene
in regions that cannot control their budgets. Catalonia is likely to miss its
deficit target this year and has had to ask Madrid for a five billion euro
bailout to meet its debt redemptions.